AIG raises $2 billion in AIA share placement

PrudenceHo

--AIG sold 591.9 million AIA shares at HK$26.50 each

--The latest sale reduces AIG's stake in the Hong Kong-listed company to about 13.69% from 18.6%

(Adds response of the share sale in the third paragraph; use of proceeds from the share sale in the fourth to sixth paragraphs; background of government ownership in AIG in the seventh-eighth paragraphs; AIA financial performance in the ninth paragraph; lockup period on AIG in the 11th paragraph; valuation comparison in the 12th paragraph.)

HONG KONG--American International Group Inc.
AIG, +0.41%
has raised around $2 billion from the sale of shares of insurance company AIA Group Ltd. (1299.HK) in a placement, as the U.S.-based company plans to further reduce its debt to the U.S. government.

AIG sold 591.9 million AIA shares for HK$26.50 ($3.42) each, a 0.8% premium to AIA's closing share price Thursday of HK$26.30, according to an announcement from AIA Friday. The price is lower than the HK$27.15 price AIG sold the shares at in March, but higher than the Asian insurer's 2010 initial public offering price of HK$19.68.

"There was a strong demand for the shares and the book was multiple times subscribed," a person familiar with the situation said Friday. AIG once owned all of AIA but was forced to sell much of its stake beginning in 2010 to help repay its bailout by the U.S. government, which totaled more than $180 billion. The latest sale reduces AIG's stake in the Hong Kong-listed company to about 13.69% from 18.6%.

After the last sale in March, AIG entered a lock-up period that prevented it from reducing its stake again until Tuesday. AIG Chief Executive Robert Benmosche had telegraphed the latest sale when he said in August the company was "looking for the right time and the right price" to further reduce its holdings.

Proceeds from the AIA transaction will add to the pool of funds AIG is amassing to buy back its own shares from the U.S. Treasury, which is AIG's largest shareholder as a consequence of the bailout. On Thursday, AIG announced its board had approved a new $5 billion stock-buyback program that is authorized to be spent only on shares now held by the government.

Treasury's stake has been reduced to about 53% from 92% in previous share sales. The insurer's new $5 billion authorization would reduce the government stake to about 49% if the Treasury sold stock back to AIG at its current share price of $34.22. If Treasury sold an equal number of shares to the public, as it has in the past, the government stake would fall to 39%.

When the government stake falls below 50%, the Federal Reserve will have the authority to regulate AIG, and Deutsche Bank analyst Josh Shanker speculated in a note to clients Wednesday that the Fed may impose a temporary moratorium on future buybacks until it can conduct a stress test on AIG's capital.

In July, AIA reported its net profit for the six months ended June 30 climbed 10% from a year earlier, while its business value, a key measure of a life insurer's profitability, climbed 28%. More than half of analysts surveyed by FactSet rate the stock a "buy."

Adding to demand for AIA shares is the stock's inclusion in the Hang Seng Index, so funds that track the HSI have to purchase the company's shares.

AIG will be subject to a 90-day lock-up period. That would mean the New York-based company can't sell its remaining AIA shares until Dec. 10.

AIA is trading at 1.38 times its embedded value, a measure used by investors to value life-insurance companies. That multiple is lower than the 1.4-1.5 multiples of the two largest Chinese life insurers listed in Hong Kong, China Life Insurance Co. and Ping An Insurance (Group) Co. of China Ltd., analysts said.

After the latest stake cut, AIG will remain the largest shareholder in AIA, owning around 1.6 billion shares valued at HK$42 billion based on its closing share price Thursday.

Deutsche Bank AG and Goldman Sachs Group Inc. are leading the share sale, people familiar with the situation said Thursday, adding Barclays PLC, Credit Suisse Group AG, Citigroup Inc., Morgan Stanley and J.P. Morgan Chase & Co. are also handling the transaction.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.